CPI highlights
- The CPI rose by 1.0% in the June quarter and 3.8% over the past 12 months.
- Significant price increases were observed in housing (+1.1%), food and non-alcoholic beverages (+1.2%), clothing and footwear (+3.1%), and alcohol and tobacco (+1.5%).
- Annual inflation for non-tradables remained high at 5.0%, while inflation for tradables increased for the first time since September 2022.
Understanding the latest CPI data and its macroeconomic implications
The latest CPI data from the ABS reveals that the CPI rose by 1.0% in Q4 FY24, with an annual increase of 3.8%. These figures reflect a range of factors influencing the economy, such as rising housing costs and geopolitical events with resonating impacts throughout global markets.
Why CPI data matters for Australian small business owners
Key implications for directors and business owners to consider include:
Increased costs and supply chain pressures
• Rising costs for housing, food, non-alcoholic beverages, clothing and transportation will increase expenses for small businesses.
• Higher prices for raw materials and transportation, such as automotive fuel, may impact supply chains and overall cost structures.
Pressure on profit margins
• The ability to pass on increased costs to consumers without losing sales can be challenging.
• Inflation in essential goods and housing means consumers’ disposable income may be reduced, affecting demand for non-essential goods and services.
Financing challenges
• If the Reserve Bank of Australia raises interest rates to control inflation, borrowing costs for small businesses will increase.
• Access to affordable financing may become more challenging, potentially impacting business expansion plans or daily operations requiring credit.
Wage pressures
• As the cost of living rises, employees may demand higher wages to keep up with inflation, further increasing operating costs for small businesses.
Demand variability
• Discretionary spending may decrease as consumers focus on essential expenditures, leading to variability in demand for products and services offered by small businesses.
Operational inefficiencies
• Inflation can expose inefficiencies in business operations, making it crucial to streamline processes and reduce waste to maintain profitability.
Recommendations for small business owners
Adjust pricing strategies
• Carefully assess the market conditions and consumer price sensitivity before adjusting prices.
• If passing costs to customers is necessary, implement gradual price increases, explaining the reasons transparently to maintain trust.
Enhance cost control
• Review and renegotiate supplier contracts to secure better pricing or more favourable terms.
• Focus on improving operational efficiencies to reduce unnecessary expenses.
• Consider bulk purchasing or joining a purchasing cooperative to benefit from economies of scale.
Improve cash flow management
• Maintain a detailed cash flow forecast to predict and prepare for potential shortfalls.
• Explore short-term financing options if needed to manage temporary cash flow issues.
• Look into government grants or subsidies aimed at supporting small businesses in the current economic climate.
Focus on core products and services
• Evaluate product lines and focus on those with the highest demand and profitability.
• Diversify offerings to include more essential and high-demand products if suitable for your business model.
Invest in technology and innovation
• Adopt digital tools and technology to streamline operations, enhance customer experience and reduce costs.
• Consider e-commerce platforms to reach a wider audience, especially if physical store traffic is impacted.
Monitor economic and policy developments
• Stay informed about economic trends, monetary policy changes and fiscal measures that could impact your business through our easy-to-digest insights from our Small Business newsletter.
• Engage with industry associations and business networks for support and advocacy.
Enhance employee engagement and retention
• While managing wage pressures, explore non-monetary benefits and flexible working arrangements to retain key staff.
• Invest in training and development to boost productivity and employee satisfaction.
Plan, prepare and prevail
The current inflationary environment presents significant challenges for small business owners in Australia.
By implementing prudent cost management strategies, adjusting pricing, improving cash flow management and staying informed about economic conditions, small businesses can better navigate the impacts of inflation.
Enhancing operational efficiencies and focusing on core products and services are also vital for maintaining profitability and achieving long-term viability in a rapidly changing economic landscape.
Contact AVA Advisory today to discuss how we can support your business in adapting and thriving in these times – call 1300 181 220 or securing a confidential, commitment-free meeting through our online booking system.
